Shifting Paradigms Of Sustainability: Measuring The Impact Of Organizational EffortsFeb 16, 2022
Let’s face it: Regardless of their political party, economic system or degree of development, governments haven’t completely solved social and environmental concerns. That generally holds true from the most developed to the poorest country, from the capitalist to the communist and from the most conservative to the most radical government.
Additionally, younger consumer generations are expecting and demanding more from public and private organizations. According to a 2020 Deloitte survey of millennials, about four in five respondents believed businesses and governments should make even greater efforts to protect the environment. Generation X, which is of the age to lead companies and governments, is a generation that had to adapt to the internet and mobile communications. We (since I am a member of Gen X) learned to take advantage of technology. Millennials, on the other hand, see the technology that for us was innovation not a long time ago as a living standard. They grew up in this technological world. Younger generations also seem to have a sense of social and environmental responsibility: 2015 Cone Communications research (via Georgetown University) found that “more than nine-in-10 Millennials would switch brands to one associated with a cause.” This research suggests that there is a demand for social and environmental concern from governments, corporations and businesses in general. Are companies ready to face the challenge?
In many cases, corporations are struggling to show that they are taking care of social and environmental concerns. What was once known as corporate-social responsibility became sustainable development goals (SDG); environmental, social and governance (ESG) practices; materiality reports; sustainability accounting standards boards (SASB); and so on. All these initiatives are meant to somehow take care of these issues. In most cases, I’ve found that corporations pledge to pursue objectives and activities that do have clear environmental and social impact indicators but fail to establish causality between those impacts and the real economic effects for the sponsor organization. The secret path between social and environmental inputs and business outputs is yet to be discovered in many organizations. Although companies are constantly making efforts to achieve this, many evaluations are limited to cost savings and economic estimations of risk mitigation. This lack of connection leads organizations to set their own diverse measurement requirements. It is easy for them to get lost when they’re making so many attempts to define and measure impact without a generally accepted standard. What can organizations do to complete such a difficult evaluation in a reliable way?
First of all, they should shift from a monitoring-only-impacts-on-costs-and-savings mindset to probe the impact of their actions on costs and on revenue generation. To prove the link between sustainability and profitability, organizations should define and manage sustainability projects as an investment (in social and environmental equity with a real economic return to the sponsoring company). For this purpose, corporations need to measure money outflows (like most companies already do) as well as money inflows (which many don’t). To figure out how sustainability initiatives affect actual revenues, it is important to develop a credible ad hoc attribution model. A robust attribution model is one that can isolate two things: the number of acts of purchase or revenue sources that have been impacted by the project and the influence of the project on the decision-making process of customers and revenue sources. To define the first one, corporations need to gauge the number of revenue-generating interactions that were exposed to the sustainability project. I’ve found that using traceability measurements that can track exposure, impressions and interactions is the best way to go about it. To define the real quantity (percentage) of this influence (the second necessary isolation), it is important to use quantitative research that can credibly give managers the composition and breakdown of their particular customer’s decision-making pie with statistical relevance.
Let’s take a deeper look into these concepts. Traditionally, organizations have measured the impact of projects using multivariance analysis. This analysis is usually biased by the criteria by which managers define the independent and dependent variables they’re measuring, and it may not reveal causality. Consumers and customers have very little to say in this model about the factors that influence their decision-making process. Therefore, in my experience, this model doesn’t account for customers’ real reasons for buying.
To define a robust and credible percentage of influence an organization’s actions have on the decision-making process of customers, it is advisable to:
• Create a list of all the influencing reasons you think your customers might have to buy from you: Price, recommendations, offers, advertising and merchandising are some examples. Remember to always include the sustainability projects for which you want to define economic impact, as well as all other factors that you think may determine your clients’ decision to buy.
• Always leave room for customers to mention other influencing factors you may not have thought of.
• Select a random, statistically representative sample of customers.
• Ask your sample about the percentage of influence each of your factors had on their decision to buy.
• Do your survey during your sustainability project’s period of influence on purchases. Remember that the project’s period of influence on the decision-making process of customers might go beyond the execution stage.
• Have a data analyst extract conclusions, increase rigor and define your customers’ real decision-making pie.
• Use the percentage of influence of your sustainability project to isolate the economic effect it had on your company’s bottom line.
Corporations should shift to a more rigorous approach when they’re measuring the impact of their sustainability efforts. Defining and isolating the influence of such projects on revenues through an ad hoc attribution model is key to doing that. By treating sustainability projects as investments and transforming them into a competitive advantage, organizations can help ensure that sustainability and profitability go hand in hand.